When reciprocal tariffs on China were announced in early April, ocean bookings quickly ground to a halt. It was clear then that once those tariffs were rationalized, the ocean freight market would face significant disruption.
While a general 55 percent tariff on goods from China is far from ideal for most importers, it is likely low enough to trigger mass exports to resume from China as quickly as can be arranged. There will be several effects on the ocean market, some of which will be seen almost immediately, and some of which will take time to develop.
The severity of the overall impacts, and how long those impacts will be felt, will depend on a number of factors, such as:
- How quickly can shippers make cargo available to move? There are indications of as many as 1 million TEU of cargo already prepared to ship which may seek immediate bookings. A demand resurgence that is that rapid will shock the current ocean capacity.
- How quickly can ocean carriers get capacity back into the market? Many Trans-Pac vessels were repurposed to other trade lanes, and it may take 1-2 months, if not longer, to return. This timeframe would swell backlogs and elongate the difficult period through the summer months.
- How much demand behind the initial surge will there be? Unquestionably, inventory levels have been depleted, and typical Peak Season timelines will likely be pulled forward because of the uncertainty over what happens after the 90-day pause. If demand remains over the next 3-4 months, even if capacity gets brought back in, it is difficult to see much relief before late Q3.
Escalating Freight Rates
The most practical and initial impact will be an escalation in freight rates, and severe escalation, at least initially, should be expected.
Since the reciprocal tariffs were announced, ocean carriers have been cutting vessel capacity to align with the acute drop in bookings that followed. As a result, many vessels that typically serve the US trade, are now operating on other routes.
A sudden surge in demand against such throttled capacity will quickly shift the market from overcapacity to undersupply. Naturally, ocean container rates will see sharp increases. They will likely start slowly on May 15, but ocean rate levels on June 1 could see a sizeable change as more bookings come on line.
“Fixed” Contract rates are unlikely to offer full protection from this. Most ocean carriers already issued Peak Season Surcharges (PSS) on such contracts, to start between May 21 and June 1 in amounts between $1,500 to $2,500 per container, in anticipation of tariff relief.
The rate increases will not be limited solely to China and will likely impact all of Southeast Asia as well as Indian Subcontinent trade, as other trade lanes compete for the available vessel capacity.
Restricted Allocations
Carrier contracts and negotiated space allocations are typically based on normalized capacity and forward-looking demand projections. As we now enter a period where vessel capacity is well below normal and demand projections are likely to be exceeded, ocean carriers will be challenged to maintain committed space levels as there will simply not be enough capacity to do so.
While the difficult conditions exist, there will be challenges in getting on preferred carriers, sailings or service strings. Those who pre-negotiated space commitments may find them reduced, as well.
Container Shortages
The normal rotation of “full containers sent/empty containers returned” has been disrupted for this last month. Empty container stockpiles throughout Asia are likely high enough to deal with the initial surge of bookings. However, replenishment will be an issue as blank and repurposed sailings mean empty containers will not be simultaneously returning to Asia, proportionally.
As demand picks up and remains steady, this imbalance could worsen. Shortages are likely to emerge first in the India-Sub Continent and Southeast Asia, before spreading more broadly.
Port Congestion
Ports and terminals are not designed for “Stop/Start” dynamics. Many ports and terminals in the US were having issues already this year, with an oversupply of empty containers, even causing scenarios where terminals had to restrict the return of empty containers over a lack of available terminal space.
This imbalance—more cargo coming in than empty containers going out—will likely worsen over the next 6–8 weeks. Terminals may struggle, and importers could face chassis and yard storage fees as truckers wait for return appointments.
If this problem persists throughout the summer, it can also create chassis shortages, as truckers are stuck with empty containers on chassis which cannot be used to pick up newly arriving full containers.
The Red Sea – A Possible Mitigating Factor?
With the Trump Administration’s recent announcement of a ceasefire with the Houthis that has come with an agreement not to attack merchant vessels in the Red Sea, there is renewed hope that the Suez Canal could re-open to vessel traffic.
There is no doubt such an event would help to ease the impact of the challenges being faced. Shorter transit times and more rational vessel paths will help restore capacity faster and reduce issues related to container flows.
However, with details of the Houthi agreement still unclear, most carriers remain cautious. Maersk CEO Vincent Clerc, for instance, has already stated they do not expect to resume Red Sea operations in 2025. We will continue to monitor the market and provide information as it becomes available. If you have additional questions about how this may impact your business, reach out to your Mohawk Global Representative.
By Chris Lindstrand, Vice President of International Transportation